Does the IRS Permit Churches to Endorse Candidates Through an “Alternate Channel”?

By Benjamin Leff

While we’re all waiting for one of my co-bloggers to say something smart about this, I thought I’d say a little more about campaign intervention by 501(c)(3) organizations.

Brian Galle asks by tweet, ” can we have a cite for the claim that a church cannot electioneer through a c(4)?” In a prior post, I said, “The short answer is that IRS guidance on campaign intervention differs from its guidance on lobbying because it denies 501(c)(3) organizations who want to endorse candidates the ‘alternate channel’ that is provided for lobbying. And therefore current guidance is unconstitutional.” But I didn’t explain that claim. Furthermore, the D.C. Circuit Court seems to disagree with me, since it stated in the leading case on campaign intervention by a 501(c)(3) organization: “the Church can initiate a series of steps that will provide an alternate means of political communication that will satisfy the standards set by the concurring justices in Regan.” So, here’s my justification for claiming that the IRS’s guidance is insufficient:

The IRS’s guidance on use of an “alternate channel” by a (c)(3) is ambiguous at best. In Rev. Rul. 2007-41, the IRS’s leading guidance on campaign-intervention, there is no explicit discussion of how an organization can and cannot use an alternate channel, such as a (c)(4). However, that guidance appears to prohibit the use of an alternate channel to communicate the (c)(3) organization’s own endorsement of a candidate (see discussion below), which is what I think is required under Regan v. Taxation With Representation. Presumably, it would permit an affiliated 501(c)(4) to communicate the affiliate’s endorsement. Maybe that’s a subtle distinction, but it’s one with Constitutional ramifications. By focusing on attribution of a communication rather than expenditure, the IRS closes off a channel of communication that is required by the Constitution to be left open. Because of the facts of the DC Circuit Case, this question just didn’t come up.

Rev. Rul. 2007-41 is the IRS’s leading guidance on campaign-intervention by 501(c)(3) organizations. It provides 21 situations under 7 subcategories to explain the myriad facts and circumstances that arise, but it never explicitly mentions the use of an alternate channel by a (c)(3). However, in Situations 3, 4, and 5, under the subheading, “Individual Activities by Organization Leaders,” we get a description of the IRS’s focus on attribution over expenditure, which is relevant to understanding the IRS’s view on the permissible use of an alternate channel. The section begins by explaining that organizational leaders are permitted to make “partisan comments” on their own behalf, but not “in official organization publications or at official functions of the organization.” In Situation 3, a candidate publishes and pays for an ad in a newspaper in which the CEO of a 501(c)(3) hospital authorizes the candidate to state that the CEO endorses him. The ad identifies the CEO as the CEO of the hospital, but states that the affiliation is provided for identification purposes only. The IRS concludes that “the endorsement is made by [the CEO] in a personal capacity” and therefore the hospital has not violated the prohibition. In Situation 5, a minister of a 501(c)(3) church “attends a press conference at [a candidate’s] campaign headquarters and states that [the candidate] should be reelected.” The guidance explains that the minister “does not say he is speaking on behalf of [the church].” Therefore, because he did not speak as a representative of the church, and because he is not speaking in an official church publication or official church function, the endorsement does not constitute campaign intervention by the church. Most tellingly, in Situation 4, the president of a 501(c)(3) university states in a column in the university’s alumni magazine, “it is my personal opinion that Candidate U should be reelected.” The guidance states that he “pays from his personal funds the portion of the cost of the newsletter attributable to” the column. The guidance concludes, “Because the endorsement appeared in an official publication of [the university] it constitutes campaign intervention by [the university].”

While the guidance doesn’t state this explicitly, these examples show a focus on attribution rather than expenditure that makes it difficult for an organization to fully use an alternate channel. The question in each case is not “who has paid?” but “to whom should the communication be attributed?” The IRS provides a relatively easily-applied standard: if the communication is in an official publication or at an official function, it is automatically attributed to the organization. If it is not, and if the speaker does not attribute it to the organization (or, even better, states that the statement is their own), then the organization is safe.

The problem with this attribution paradigm is that it makes endorsement through an alternate channel impossible. Imagine that in Situation 3 a candidate takes out an ad in a newspaper that states that the Hospital endorses the candidate. Even though no (c)(3) funds were used, this would presumably constitute impermissible campaign intervention. If a (c)(4) affiliate paid for the ad, presumably the result would be the same. Imagine that in Situation 5 a minister attended a press conference at the candidate’s campaign headquarters and stated that his church takes the position that the candidate should be re-elected. Presumably, the same result: impermissible campaign intervention. It wouldn’t matter if the press conference were paid for by a (c)(4) affiliate. In Situation 4, the facts are a little more complicated to apply, but let’s imagine that the official publication of the University is regularly paid for entirely by a (c)(4) affiliate. Then, prior to an election the paper announces an official endorsement by the University. Presumably, the IRS would consider this a violation of the campaign-intervention prohibition. In all these cases, a 501(c)(3) organization seeks to use an alternate channel to communicate its views on the qualifications of a candidate, and in all of these cases, I think the IRS would say the use is impermissible. In fact, I think the IRS would say that any communication of an official endorsement by a 501(c)(3) organization violates the prohibition, no matter who pays for or communicates the endorsement.

But, as I pointed out above, Justice Blackmun famously stated, “It must be remembered that §501(c)(3) organizations retain their constitutional right to speak and to petition the Government. … [A]n attempt to prevent §501(c)(4) organizations from lobbying explicitly on behalf of their §501(c)(3) affiliates would perpetuate §501(c)(3) organizations’ inability to make known their views on legislation without incurring the unconstitutional penalty…. In my view, any such restriction would render the statutory scheme unconstitutional.” (emphasis added).

By the way, I think it’s worth finding out what the IRS thinks about this approach, and so I am considering testing the matter through a new 501(c)(3) organization (which I want to create to educate the general public about tax matters anyway). I think it would only cost a few hundred dollars and a few thousand hours of work. Anyone want to contribute time or money?

One thought on “Does the IRS Permit Churches to Endorse Candidates Through an “Alternate Channel”?”

Ben – I think the guidance would say that if the *people* who run the hospital want to lobby without limit and intervene in a campaign *they* have some options. (1) Form a 501(c)(4). Provide the (c)(4) money that you do not deduct. Use the (c)(4) to endorse candidates or lobby. Use c4 letterhead. Use c4 office expenses, use people wearing a c4 hat. If you do that, even though it is the same people who run the c3, you are fine. Of course you cannot engage in too much political campaign activity wherever that line may be. Note the key is hospital c3 is not endorsing or lobbying in this case hospital social welfare c4 is instead. It is not hospital that is establishing the c4, but the people who run it and are trying to accomplish certain goals. (2) Where you are engaging in political campaign activity, you may want to set up a separate 527 to engage in the political activity. Again, key is that no funds from the hospital charity go to the 527.

The key is not about the expenditure, although it is an issue. It is expenditure plus attribution. You can see a footnote in Regan discussing the IRS’s position on the c3 and c4 issue.

Blog Stats

164,607 hits

Copyright Notice

Readers should feel free to share excerpts from and link to blog posts on this site. Please give full credit to the post's author, with appropriate and specific direction to the original content. Unauthorized use and/or duplication of this material without written permission of the relevant author is strictly prohibited.

Legal Disclaimer

This material on this site is not intended to provide, and should not be relied on for, tax, legal or accounting advice. We do not provide tax or legal advice, so please consult your own professional advisors if you need help. Each post reflects the individual author's own opinion only and not the views of the other authors.